Smart Contracts in Real Estate using Blockchain

The world is slowly turning ‘smart’. We have smart cities, smart homes, smart technologies, smart phones, and now, even smart contracts. Did you know that today, the real estate industry is seeing a potential disruption in the form of smart contracts using blockchain technology? Fascinating, right? But what is it all about? What are smart contracts? How can this benefit, or even hamper, the real estate industry as we know it? And how does blockchain fit into all this? Let’s find out.

A smart contract is basically a contract that is written in code using if-then statements instead of long paragraphs of content. As for smart contracts in blockchain, this generated code is distributed among the blockchain data that is present. Another highlight of these contracts is that it automates actions. For example, if a tenant signs the agreement, then the deposit amount will be transferred from his account to the landlord’s/agency’s account.

There is a lot of tediousness in managing the chain and title and lien of a property. There are greater chances of fraud, recording issues, diligence and documentation, and the clearance process is also quite long and complicated. A lot of the time, real estate contracts have to undergo corrections in titles before being transferred or signed.

The entire history of the property can be recorded using blockchain technology, which has all the information that you may need to make a contract. A smart contract based on this information can be useful for assessing the title of the property in legal cases.

For all commercial real estate transactions, be it leasing, sale or purchase, there is a lot of paperwork, diligence, and evaluation involved. This is time-consuming and has a lot of scope for error, whilst increasing the amount of administrative work and labour required.

Smart contracts and blockchain (for a property with a digital presence) can minimize the physical processes and reduce chances of fraud as well. For instance, it can help faster and better verification of ID proof, credit and other history, underwriting procedure and financial evaluation. Smart contracts can be used to enforce certain terms and conditions for the transaction, after ensuring that all the other legal requirements are taken care of.

Leases are currently written in text format consisting of numerous paragraphs and sentences. Smart contracts can be of help in creating a standardized format of leases, and that too in programmable code. This code can be read anywhere, and smart contracts will leave less room for interpretation and subjectivity; this is because of their straightforward if-then sentence format.

These two are the tricky areas in real estate prone to miscommunication, a lot of back and forth, and immense time. A standard lease in codified format proves to be more economical and simpler. Also, the processes of creating, executing and redlining a lease can all be done on one document instead of having the same document being passed around. Any changes in the lease can be recorded in the ledger right there. All this will save time and a lot of work.